The Administration is working to avert the problems that could occur
if systems are not able to correctly process the year 2000. On February 6,
1997, OMB sent a report to the Congress entitled "Getting Federal Computers
Ready for 2000," which outlines the Federal government's strategy to address
the year 2000 computer problem in its systems. That strategy is predicated on
assuring agency accountability. To assist in that effort, OMB required agencies
to report quarterly on their progress on the fifteenth of February, May,
August, and November. (See OMB Memorandum M-97-13, "Computer Difficulties Due
to the Year 2000 -- Progress Reports" - May 7, 1997). This report summarizes
those plans and describes other actions being taken to asssure success.

The Federal government's strategy is based on the five phases of
agency best practices for addressing the problem: Awareness, Assessment,
Renovation, Validation, and Implementation 1/.
With advice from the CIO Council, OMB set government-wide milestones for the
completion of work in each of the phases. Agencies then established plans for
when they would complete the work in each phase. The quarterly reports which
are summarized here are used to measure progress against those plans.

On June 23, OMB sent the Congress a summary of the first agency
quarterly reports, and made it available to the public. This second summary
report is based on the second agency progress reports which were due to OMB on
August 15, 1997.

Government-wide Progress

Analysis

The February report established the schedule against which to measure
progress and provided initial cost estimates. This report provides the second
measure of progress and again updates cost estimates. It shows that:

many agencies have completed their assessment of the problem and
are renovating code;

others have not made substantial progress;

agencies now estimate they will spend $3.8 billion fixing the
problem;

the number of mission critical systems that agencies have
identified has increased to 8,562 (excluding the Social Security
Administration, which reported modules); and,

of those mission critical systems:

5,332 (62%) are being repaired,

1091 (13%) are being replaced,

390 (5%) are being retired, and

1646 (19%) are already year 2000 compliant.

This report includes four tables which array and summarize
information provided by agencies.

Table 1, "Agency Progress and Plans for Year 2000 Compliance of
Mission Critical Systems," provides the agencies' schedules for completing the
five phases of the government-wide best practices. It shows that 20 of the 24
agencies were scheduled to have completed the assessment phase by August 15,
1997.

Table 2, "Agency Year 2000 Mission Critical Systems," provides a
snapshot of the size of the year 2000 problem and the results of "repair,
replace, or retire" decisions made thus far. Agencies have now identified 8,562
mission critical systems (excluding the Social Security Administration which
has identified 29,139 modules), which is 913 more than the 7,649 identified in
the May report.

Table 2 also shows that agencies are repairing the majority (62
percent) of their systems, replacing 13 percent, and retiring 5 percent.
Nineteen (19) percent of agency mission critical systems are already Year 2000
compliant. In May agencies reported that they would repair 59 percent, replace
9 percent, and retire 5 percent of their mission critical systems, and that 21
percent were already compliant.

Table 3, "Status of Agency Year 2000 Mission Critical Systems Being
Repaired," shows that, as a weighted percentage, the government is 56 percent
complete with its assessment, and 12 percent complete with renovation of the
mission critical systems to be repaired. These reductions in the percentages
from the May report (65 percent and 17 percent respectively) are due to the
agencies' identifying 839 more systems being repaired than were reported in
May.

Table 4, "Agency Year 2000 Cost Estimates as of August 15, 1997,"
shows the estimated costs for fixing the problem by agency. Agencies now
estimate it will cost $3.8 billion to fix the year 2000 problem, which is $1
billion higher that the $2.8 billion reported in May. That includes estimated
expenditures of $850 million in FY 1997 and $1.7 billion in FY 1998.

The estimates cover the costs of identifying necessary changes,
evaluating the cost effectiveness of making those changes (fix or scrap
decisions), making changes, testing systems, and preparing contingencies for
failure recovery. They do not include the costs of upgrades or replacements
that would otherwise occur as part of the normal systems life cycle. They also
do not include the Federal share of the costs for state information systems
that support Federal programs. The figures provided by agencies continue to be
preliminary estimates.

Evaluation

Based on the reports, some agencies are making good progress in
addressing the year 2000 problem. Most are on schedule and have completed their
assessment of the problem; many have also begun renovating systems. However, as
the summary tables show, most of the work remains to be done. As of today, 75
percent of the 8,562 agency mission-critical systems identified must be
repaired or replaced.

While progress has been made overall, it has not been uniform across
the agencies. The reports are disappointing in several of the agencies and we
will therefore increase our oversight of their activities. (See the agency
evaluation discussion below.)

As expected, our estimate of the government-wide cost ($3.8 billion)
is higher than the $2.8 billion estimate that we reported in May, because
agencies are progressing through their assessments of the problem. The primary
sources of the increase are the Treasury Department ($736 million), the
Transportation Department ($173 million), and the Department of Defense ($92
million). We expect that the next quarterly report will provide a better cost
estimate as agencies complete the assessment phase and gain more experience
about how much it costs to renovate their systems.

Government wide Issues

Validation

As agencies move into renovating code, proper validation of changes
made will be critical to success in fixing this problem. These two activities
will happen sequentially for each system, but their schedules will overlap
within an agency, because different systems will be at different stages of
being fixed. Table 1 includes a schedule of when agencies will complete the
renovation and validation of all of their mission critical systems. Over the
coming months OMB will meet with those agencies with the latest scheduled
completion of the validation phase and discuss the adequacy of those dates.

As part of those meetings, we will discuss the preparedness of
communications interfaces with systems external to the Federal government,
including State and local governments and the private sector. The CIO Council
has established a working group to specifically look at ways to streamline the
interfaces between the Federal government and State and local governments.
Among that group's accomplishments are establishing points of contact for the
States in each Federal agency, and work on a State-Federal summit, to be held
in October, to discuss electronic data interfaces between the States and the
Federal government.

Auditing

The year 2000 problem represents a threat to systems that are
critical to the functioning of the government. Therefore, it is important to be
sure that the problem has been or is being fixed. Auditors can provide an
independent validation of progress in addressing this problem. Accordingly,
OMB is revising its system audit guidelines to request that agency auditors
report on Year 2000 progress from now through 2000.

Planning for Contingencies

Where a mission critical system is not fixed in time, it is essential
that a contingency plan be in place. Agencies are to develop such plans in
accordance with the government-wide best practices endorsed by the CIO Council.
To assure that such planning has occurred for systems in danger of not being
repaired on time, we have asked for a summary of the contingency plan for any
mission critical system that is reported behind schedule in two consecutive
quarterly reports. We will identify and summarize any such plans in future
reports to the Congress.

Other Government-wide Systems

We have identified and are working on three government-wide areas
where the year 2000 problem occurs in other than computer systems:
telecommunications, bio-medical devices and laboratory equipment, and
facilities. In these areas, the problem occurs in commercial products that have
computers or computer chips inside. We have established inter-agency working
groups, chaired by the key programmatic agency in each of these three areas, to
raise awareness and to work with manufacturers to assure that products are
fixed. Should other government-wide areas be identified, we will organize
similar inter-agency efforts to address them.

Agency-Specific Progress

Agency Evaluation.

While most agencies appear to be making progress in addressing this
problem, a number are not. Slippage in agency schedules is not an option.
Therefore, we are identifying agencies in one of three categories depending on
whether there is sufficient evidence they are making adequate progress in
addressing this problem.

The following criteria helped form our evaluation of the information
received from the agencies:

Status of the assessment of the problem

Measurable improvement from previous reports

Schedule for completion of the phases of best practices

Dramatic changes in previously reported information or other
indications of concern

The first category is agencies where there is insufficient evidence
of progress. The agencies in the first category are: Agriculture, Education,
Transportation, AID.

The Department of Agriculture missed its completion date for the
assessment of its problem and reports that it is only 38 percent complete with
its assessment. Because of this lack of progress, the Secretary of Agriculture
has imposed several stringent measures on the components of the Department,
including a moratorium on the purchase of new information technology until the
assessment is completed.

Of the Department of Education's 24 mission critical systems, 10 are
already compliant, 6 are being replaced, 1 is being retired, and 7 are being
repaired. The Department missed its completion date for the assessment of its
systems to be repaired, and reported that 5 mission critical systems were
already two months behind schedule. Of the 7 needing repair, 3 of the 4 systems
directly relating to student financial aid delivery have been assessed or are
undergoing assessment. The remaining student financial aid system needing
repair, and 3 other systems, had not begun assessment as of the August report.
The Department currently reports that it has begun all assessments and is
taking action to assure that work on the systems is accelerated so that
problems found will be corrected in time.

The Department of Transportation will not complete its assessment
until December 1997. Based on the first part of the assessment, however, the
Department has increased its estimate of the work required to fix the problem
by 3-fold. In addition, the Department does not plan to complete its validation
until December 1999. The Deputy Secretary has increased the executive level
attention to this problem within the Department.

The Agency for International Development has not provided a schedule
for its efforts. Based on its recently completed assessment of its corporate
systems, however, it found that its newly implemented suite of systems
contained year 2000 vulnerabilities. The Administrator will update its report
in November.

For these agencies we are establishing a rebuttable presumption
going into the FY 1999 budget formulation process this Fall that we will not
fund requests for information technology investments unless they are directly
related to fixing the year 2000 problem.

For agencies in the second category, we see evidence of progress, but
also have concerns. Many have strong year 2000 programs which we expect will
continue to show progress. The agencies in the second category are: Commerce,
Defense, Energy, HHS, Interior, Justice, Treasury, EPA, FEMA, NASA, OPM, and
SBA. A summary of concerns and progress for these agencies appears at Table 5.

For these agencies, we will discuss their year 2000 program with
them during the Fall, but will forbear applying the rebuttable presumption
concerning funding until we receive their November 15th quarterly report. We
will, however, put them on notice that FY 1999 funding for information
technology investments will be contingent on continued progress in addressing
the Year 2000 problem.

The remaining agencies -- HUD, Labor, State, VA, GSA, NSF, NRC, and
SSA -- appear to be making progress. For these agencies, our approach will be
as follows:

Technology investments of these agencies will be treated in
accordance with OMB's normal budgetary review criteria, which include a
requirement that the investment "reflect the agency's year 2000 compliance
plan. (See OMB Memorandum M-97-02, "Funding Information Systems Investments.").

All agency progress will be re-evaluated upon receipt of their
November 15 reports.

Exception Report on Systems.

OMB requires agencies to report on any mission-critical systems for
which year 2000 efforts have fallen more than two months behind schedule.

The Department of Energy reported that a number of its sites had not
identified any mission critical systems, and that they were, therefore, behind
schedule on the assessment phase. Senior management in the Department has taken
action to assure that those sites identify their mission critical systems and
assess whether they are year 2000 compliant. The Department reports that there
will be some additions to their number of mission critical systems in future
reports.

The Department of Education reported three systems that are behind
schedule in completing their assessment, due to contractual problems. They also
report that those contractual problems have been resolved and that the
schedules have been adjusted for those systems to assure they will be year 2000
compliant in time.

Conclusion.

Overall progress continues, and agencies continue to place a high
priority on fixing this problem. However, a number of potential problem areas
are apparent, and OMB is taking action to assure that these areas receive the
proper attention.

1/ While there are five phases, the
work in them overlaps. It is not necessary, for example, for the assessment of
all systems to be completed before renovation of systems begins.

AGENCY YEAR 2000 COST ESTIMATES AS OF AUGUST 15, 1997 (Dollars
in Millions, by Fiscal Year)

Agency

1996

1997

1998

1999

2000

TOTAL

Agriculture *

5.0

24.6

49.6

25.3

9.0

113.5

Commerce *

2.6

11.5

28.0

25.8

6.6

74.5

Defense * 1/

10.6

389.2

659.8

281.1

7.1

1409.5

Education

0.1

0.6

3.4

4.4

0.2

8.7

Energy

1.8

30.6

54.5

53.2

20.4

160.5

HHS

9.2

25.0

42.9

20.1

0.0

97.2

HUD **

0.7

7.6

35.0

15.0

6.2

64.5

Interior **

0.2

2.7

5.3

3.9

1.6

13.7

Justice *

1.5

8.0

11.5

3.1

0.3

24.4

Labor *

1.7

5.3

6.9

3.4

1.1

18.4

State

0.5

47.6

56.4

29.1

1.6

135.2

Transportation *

0.6

18.7

107.9

107.4

30.1

264.7

Treasury *

1.3

192.5

518.0

265.0

128.9

1105.7

VA *

4.0

53.0

58.0

47.0

0.0

162.0

AID

0.0

0.2

0.5

0.3

0.0

1.0

EPA

0.8

3.3

6.8

5.6

2.3

18.8

FEMA

3.8

4.4

3.0

3.2

1.2

15.6

GSA

0.2

1.0

1.0

0.1

0.0

2.3

NASA **

0.1

8.5

20.5

12.1

2.2

43.4

NSF

0.0

0.5

0.8

0.1

0.0

1.4

NRC

0.0

2.6

2.9

2.9

0.9

9.3

OPM

1.7

2.1

0.3

0.3

0.3

4.7

SBA

1.7

3.3

2.0

0.0

0.0

7.0

SSA

2.2

15.4

9.5

6.0

0.1

33.2

TOTAL

50.4

858.1

1684.5

914.3

220.2

3789.2

Notes:

These estimates do not include the Federal share of the costs for
State information systems that support Federal programs. For example, the
Agriculture total does not include the potential 50 percent in Federal matching
funds provided to States by Food and Consumer Services to correct their Year
2000 problems. Similarly, the HHS total does not include the Medicaid baseline
costs for the Federal share of state systems. And, while Labor's FY 1998
appropriation request includes $200 million for States to correct Year 2000
problems in State unemployment insurance systems, that amount is not included
in this estimate.

*Agencies for which total estimate increased by more than $1 million
from the May report.

** Agencies for which total estimate decreased by more than $1
million from the May report.

1/ Defense total estimate includes 61.7 million that was
not allocated by year.

TABLE 5

Concerns and Progress for Second Category Agencies (August 15,
1997)

Agency

Principal Concerns

Evidence of Progress

Commerce

Missed its assessment completion date

Progress in assessment and renovation of mission critical
systems

Defense

Large number and variety of systems and interfaces.
Substantial number still being assessed

Department remains on its schedule, Y2K is a top information
technology priority